1. Chicago Board of Trade Market News

Outlook: March corn gained 5 ¼ cents this week in what, for the current environment, amounts to a sizeable rally. The market found its way higher this week, fueled by dry weather in Argentina, production cuts around the world, and spillover buying from other markets. The fundamentals are hardly bullish yet, but modest production cuts may lift the market from its recent malaise.

Argentina’s weather forecast remains hot and dry for the next 10 days, as it has been for weeks now. The situation is more concerning for the country’s soybean crop, but it can hardly be ignored for corn. The USDA recently made a 2 MMT downward revision to Argentina’s corn production this year due to the drought. Elsewhere, drought in South Africa has cut the country’s corn planting expectations, further moderating world supply expectations. These changes are not enough to create a bull market but will likely keep corn trading at a premium to its recent ranges.

USDA’s export sales report this morning featured better-than-expected sales for corn (72.9 million bushels) but export volumes that were lower than needed. YTD exports are down 30 percent from last year at 543 million bushels and have only reached 28 percent of USDA’s annual forecast, versus an average of 33 percent for this time of year. U.S. exporters have some ground to cover if USDA’s forecast will be met, but the falling U.S. dollar and the fact that FOB NOLA corn is the cheapest in the world right now could buoy exports.

From a technical perspective, March corn made the important move above the 100-day moving average and has since found strong support at this point. The market faces resistance at $3.62 and has been unable to trade much above this point. Momentum indicators are pointing higher, though some are beginning to indicate an overbought market. Fund short-covering has been active this week and further deterioration in world crops could extend this buying. The next upside targets are $3.70 and $3.75 while strong support lies at the 100-day moving average.

2. CBOT Corn Futures

CBOT March Corn Futures

Current Market Values:

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: In the 2 days since the Tuesday morning cutoff time of this week’s USDM, light precipitation has fallen across the northern tier states while the southern CONUS has been dry. For February 1-6, a ridge will set up over the western U.S., blocking storm systems and bringing warmer-than-normal temperatures, while a trough will dominate the East with colder-than-normal air masses. No precipitation is in the forecast for the Southwest to southern Plains. Pacific systems tracking across the Pacific Northwest and northern Rockies are predicted to drop half an inch of precipitation with over 3 inches in favored high elevation locations. The systems will dry out as they cross the Rockies, dropping up to half an inch of precipitation across the northern Plains to Great Lakes. The fronts and surface lows will pick up Gulf of Mexico moisture as they travel into the eastern trough, bringing half an inch to an inch of precipitation from eastern Texas to the East Coast, with up to 2 inches expected from northeastern Mississippi to southern West Virginia.

The ridge/trough pattern is expected to persist into February 7-14, continuing warmer-than-normal temperatures for the West and cooler-than-normal temperatures for the northern and central Plains to East Coast. Odds favor below-normal precipitation beneath the ridge across the West and into the central Plains. The February 7-14 period is expected to begin wetter than normal for the northern Plains to Tennessee Valley and Mid-Atlantic to Northeast regions but turn drier-than-normal for the latter part of the period.

Optional Origin Sales: For 2017/2018, new optional origin sales of 55,000 MT were reported for Vietnam. The current optional origin outstanding balance of 724,500 MT is for South Korea (342,000 MT), unknown destinations (261,500 MT), and Vietnam (121,000 MT).

Barley: No net sales were reported for the week. Exports of 600 MT were reported to Japan.

Sorghum: Net sales of 242,400 MT for 2017/2018 were up 46 percent from the previous week and 65 percent from the prior 4-week average. Increases were reported for China (305,300 MT, including 132,000 MT switched from unknown destinations and decreases of 8,400 MT) and Japan (11,200 MT). Reductions totaling 74,000 MT were reported for unknown destinations. Exports of 246,900 MT were up 13 percent from the previous week and up noticeably from the prior 4-week average. The destinations were China (236,000 MT), Japan (10,700 MT), and Mexico (200 MT).

5. FOB

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: DDGS prices have taken a pause from their months-long increase as buyers and sellers reassess market fundamentals. Ethanol production fell slightly this week, but ethanol stocks were down 3.5 percent, which may signal additional production in the coming weeks. FOB ethanol plant DDGS were down $1/MT this week while soybean meal rose $3.60/MT, putting the DDGS/soybean meal ratio at 44 percent, down from the prior week. On a per-protein unit basis, FOB ethanol plant DDGS are $1.08 cheaper than Kansas City soybean meal.

Barge CIF NOLA DDGS values were lower this week as river logistics improve. FOB NOLA DDGS fell as did rail-delivered product to the PNW. Internationally, prices for 40-foot containers to SE Asia increased $7/MT on average as demand remains robust, especially in Indonesia, Malaysia, and Japan. Prices for product destined for Japan increased $20/MT this week while product for Indonesia and Malaysia rose $11/MT.

7. Country News

Argentina: Inadequate moisture prompted USDA to reduce Argentina’s estimated corn production by 2 MMT down to a total of 40 MMT. Rabobank made a similar reduction, lowering its estimate from 41 MMT to 39 MMT. The bank reduced the country’s corn export forecast by 1.5 MMT to a total of 28 MMT. (UkrAgroConsult; Rabobank)

Brazil: The country’s Matto Grosso state contributed 62.5 percent (18.3 MMT) to the country’s 29.2 MMT in corn exports in 2017 but Imea, the government analysis entity, says its contribution will fall this year to 15.58 MMT. Late planting of the summer soybean crop prevented subsequent planting of second-crop corn. (Agricensus)

Mexico: USDA’s corn production estimate for Mexico in 2017/18 was raised by 2.2 percent to 26.8 MMT. The import estimate was similarly reduced. (Agricensus)

Nigeria: Corn output in 2018 will fall 7 percent (750 KMT) from last season to 10 MMT. Pests and a 33 percent increase in corn imports to 400 KMT are blamed for the decline. (Bloomberg)

Turkey: Farmers have switched a small amount of their acreage from corn to cotton, which has hit multi-year highs. Brazilian farmers may similarly be enticed to switch some of the safrinha corn acres over to cotton. Meanwhile, to fight food inflation the government has eliminated the 35 percent duty on imported barley until 1 April 2018. A 25 percent tariff remains in place on imported corn. (Agricensus; World Grain)

Ukraine: Corn prices rose to a six-month high ($172.50/MT) based on the sale of 10 (Panamax) vessels to China and growing exports to the EU. (Platts)

8. Ocean Freight Markets and Spread

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Last week I stated that ocean freight rates were moving up and down like the tide. This week they continued to act this way. Two weeks ago, the markets were lower week-over-week. Last week they went up; what went up last week went back down this week. So, from a cost perspective, things are simply moving in circles. We are two weeks away from the Lunar New Year and I do not believe anyone wants to make any big moves prior to the holiday break.

Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China: